2012 CHAIRMAN BERNANKE.

Good afternoon and welcome.

In my opening remarks I will briefly review today's policy decision

by the Federal Open Market Committee.

And then I'll discuss next the consensus statement that has been distributed

to you regarding the Committee's longer-run policy goals and strategy.

And finally, I'll place today's policy decision in the context

of our economic projections and our assessments

of the appropriate path of monetary policy.

And I'll then, of course, be glad to take your questions.

As indicated in the statement released earlier this afternoon,

to support a stronger economic recovery and to help ensure that inflation,

over time, is at levels consistent with our statutory mandate,

the Committee expects to maintain a highly accommodative stance

for monetary policy.

In particular, the Committee decided to keep the target range

for the federal funds rate at 0 to ¼ percent and currently anticipates

that economic conditions are likely to warrant exceptionally low levels

for the federal funds rate at least until late 2014.

To provide support for the recovery in the context of price stability,

the Committee will also continue the program that we announced in September

to extend the average maturity of the Federal Reserve's holdings of securities.

Following careful deliberations,

Committee participants have reached broad agreement on a statement

that sets forth our longer-run goals and policy strategy.

This statement should not be interpreted as indicating any change

in how the Federal Reserve conducts monetary policy.

Rather, its purpose is to increase the transparency

and predictability of policy.

There is today widespread agreement that clear

and transparent central bank communications facilitate well informed

decisionmaking by households and businesses,

reduce economic and financial uncertainty,

increase the effectiveness of monetary policy,

and enhance accountability to the public.

The statement begins by noting the Committee's firm commitment

to fulfill our statutory mandate of promoting maximum employment, stable prices,

and moderate long-term interest rates.

Since monetary policy actions tend to influence economic activity

and prices with a lag, our decisions appropriately reflect the Committee's

longer-run goals, our medium-term outlook, and our assessment of the balance

of risks, including risks to the financial system

that could impede the attainment of our goals.

An important aspect of policy transparency is clarity about policy objectives.

With respect to the objective of price stability,

it is essential to recognize that the inflation rate

over the longer run is primarily determined by monetary policy,

and hence the Committee has the ability

to specify a longer-run goal for inflation.

The Committee judges that inflation at the rate of 2 percent,

as measured by the annual change in the price index

for personal consumption expenditures, is most consistent over the longer run

with our statutory mandate.

Over time, a higher inflation rate would reduce the public's ability

to make accurate longer-term economic and financial decisions,

whereas a lower inflation rate would be associated with an elevated probability

of falling into deflation, which can lead to significant economic problems.

Clearly communicating to the public this 2 percent goal for inflation

over the longer run should help foster price stability

and moderate long-term interest rates and will enhance the Committee's ability

to promote maximum employment in the face of significant economic disturbances.

Maximum employment stands on an equal footing with price stability

as an objective of monetary policy.

A difference with price stability is that the maximum level of employment

in a given economy is largely determined by nonmonetary factors

that affect the structure and dynamics of the labor market,

including demographic trends, the pace of technological innovation,

and a variety of other influences, including a range of economic policies.

Because monetary policy does not determine the maximum level of employment

that the economy can sustain in the longer term,

and since many of the determinants of maximum employment may change over time

or may not be directly measurable, it is not feasible for any central bank

to specify a fixed goal for the longer-run level of employment.

Although the Committee cannot freely choose a longer-run goal for employment,

it can estimate the level of maximum employment and use that estimate

to inform its policy decisions.

The Committee considers a wide range of indicators in making its assessments

of maximum employment, recognizing

that such assessments are necessarily uncertain

and subject to revision over time.

For example, in the latest set of projections that have been distributed to you,

Committee participants' estimates of the longer-run normal rate

of unemployment have a central tendency of 5.2 percent

to 6.0 percent-roughly unchanged from last January

but higher than the corresponding interval several years ago.

As I noted, the level of maximum employment is not immutable; in particular,

it could be increased by effective policies, such as education

and training that improve workforce skills.

If the Committee's assessments pointed to an increase

in the maximum attainable level of employment,

our policy strategy would be modified appropriately to aim at the higher level.

In setting monetary policy, the Committee seeks to mitigate deviations

of inflation from its mandate-consistent rate and deviations of employment

from our assessments of its maximum level.

These dual objectives are generally complementary.

For example, under present circumstances,

in which the unemployment rate is elevated and the inflation outlook is subdued,

the Committee judges that sustaining a highly accommodative stance

of monetary policy is consistent with promoting both objectives.

And in the longer term, low and stable inflation can help promote healthy growth

in output and employment.

Of course, circumstances may sometimes arise

in which the dual objectives are not complementary.

In such cases, the Committee follows a balanced approach

in promoting these two objectives, taking into account the magnitude

of the deviations and potentially different time horizons over which inflation

and employment are projected to return

to levels judged consistent with our mandate.

In other words, the Committee always treats its primary objectives

of price stability and maximum employment symmetrically,

and the stance of policy at any given time is determined by the size,

social cost, and expected evolution of the deviations of each

of the Committee's policy objectives from its desired level.

I will now turn to the economic projections of the 17 FOMC participants-that is,

5 Board members and 12 Reserve Bank presidents-submitted

in conjunction with today's meeting.

The central tendencies and ranges of those projections for the years 2011

to 2014 and over the longer run are depicted in the figures

that have been distributed.

The longer-run projections-shown at the right

of each figure-represent participants' assessments of the rate

to which each variable will converge over time under appropriate monetary policy

and in the absence of further shocks to the economy.

Incoming information suggests that the economy has been expanding moderately,

notwithstanding some slowing in global growth.

The Committee expects the pace of economic growth to be,

over coming quarters-to be moderate over coming quarters,

reflecting ongoing drags from the housing sector

and still-tight credit conditions for many households and smaller businesses.

Specifically, participants' projections for the growth rate

of real gross domestic product

in 2012 have a central tendency of 2.2 to 2.7 percent.

Strains in global financial markets continue

to pose significant downside risks to that outlook.

Looking further ahead, economic activity is expected to accelerate gradually

in conjunction with strengthening consumer and business confidence,

improving financial conditions,

and the continuation of a highly accommodative stance for monetary policy.

Specifically, participants' GDP projections for 2013 have a central tendency

of 2.8 to 3.2 percent, and their projections for 2014 have a central tendency

of 3.3 to 4.0 percent, noticeably higher than the central tendency of 2.3

to 2.6 percent for their longer-run growth projections.

A number of recent indicators point to some further improvement

in overall labor market conditions, but the unemployment rate remains elevated.

Moreover, in light of the anticipated modest pace of economic recovery,

the Committee expects that over coming quarters the unemployment rate will

decline only gradually toward its mandate-consistent levels.

Indeed, participants' projections for the unemployment rate

in the fourth quarter of this year have a central tendency of 8.2 to 8.5 percent

that is little different from the latest monthly reading of 8.5 percent.

With economic growth expected to pick up somewhat over time,

the unemployment rate is expected to decline to 6.7 to 7.6 percent

by the fourth quarter of 2014-still well above participants' estimates

of the longer-run normal rate of unemployment.

I'll turn now to the outlook for inflation.

The prices of oil and other commodities have generally flattened out

or turned downward over the past couple of quarters,

while low levels of resource utilization have continued

to constrain the growth of labor costs.

Consequently, consumer price inflation-which surged in the first half

of last year-has been subdued in recent months.

Survey measures and financial market indicators imply

that longer-term inflation expectations have remained stable.

Over coming quarters,